Akron Beacon Journal: Portman right about tax repair

Not long ago, General Electric became the emblem of corporate tax avoidance. The New York Times reported that in 2010, the company reaped $14.2 billion in profits worldwide, $5.1 billion coming from its American operations. And the federal taxes the company paid? Zero. The revelation triggered calls for repairing a corporate tax code brimming with special breaks, subsidies and shelters, resulting in varying treatment for industries and sectors across the economy.

The immediate clamor long since has eased, yet the problem remains. U.S. Sen. Rob Portman has been one persistent voice about the need for change. The Ohio Republican told a Washington gathering last week that he has in mind introducing a reform bill in the coming weeks that would feature bipartisan support. He understands the difficulty in getting anything so substantial accomplished in this election year. He also recognizes the imperative.

For Portman, the primary concern is the country's competitiveness. He correctly notes that the United States has one of the highest corporate tax rates — 35 percent. He adds that the structure is antiquated. Many other industrial countries have been lowering sharply their corporate tax rate in recent years, including Canada, Germany and France. More, such countries no longer require companies to pay domestic taxes on profits earned overseas. Thus, in continuing to do so, the United States stands as something of an outlier.

Portman proposes lowering the tax rate to 25 percent. He also would bring application of the tax in line with other countries, paying foreign taxes on foreign profits. In addition, he would address the many and bewildering tax preferences.

The direction is sensible, providing a necessary update. Worth noting are the analyses showing that although the corporate tax rate is 35 percent, American companies pay at an effective tax of 25 percent or so, a bit higher than the rate paid by companies in most other industrial countries. A 2008 Government Accountability Office report found that more than half of American companies paid no federal income taxes during at least one year of the seven years examined.

Consider, too, that corporate taxes in this country amount to 1.3 percent of the overall economy, as opposed to 2.5 percent in comparable countries. What is pressing isn't so much the burden of taxes as it is the structure of the code. Other countries have reduced their corporate tax rates without diminishing the flow of revenue.

That is especially important here in view of the need to reduce federal budget deficits once the economy gains steam. Know that since the 1950s the corporate share of all federal revenue has declined from 30 percent to roughly 7 percent today. So, if the goal is a 25 percent rate, then the array of loopholes, credits and exemptions must be erased, the corporate tax code reflecting the sound principle of a low rate and broad base.

That approach doesn't please everyone, many companies wanting a lower rate and the tax preferences. Yet it is the path to a more efficient and effective tax system, and a more competitive posture for the country, both outcomes highlighting why Rob Portman is right about moving sooner rather than later to make the repairs.